Prepayments in February continued to reduce the outstanding quantity of 6.5s and up, further changing the coupon distribution in the mortgage market. With rates so low, the market is seeing increased production in 30-year 5s and even some issuance in 15-year 4.5s, which is noteworthy given that, just a year ago, there was barely any 5.5s production.

"One thing that happened this week is 30-year 5s are starting to become a more actively traded coupon and more actively originated by mortgage bankers," said Art Frank, head of mortgage research at Nomura Securities International last Tuesday. "This interest rate environment resulted in 5.5s to 7s becoming more compressed."

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